Andrew C. Wiechmann
Chief Financial Officer at MSCI
Thanks, Baer, and hi, everyone. The results for the quarter reflect the enormous demand that Henry and Baer spoke about, which is translating into strength across most parts of our business. We had the best third quarter on record for both company-wide recurring net new sales and for total recurring subscription sales in both our index and ESG and climate segments. We also saw a record quarter in firm-wide nonrecurring sales following strong performance in nonrecurring sales in both Q1 and Q2. This strength has been driven by wins in index from sales associated with license and usage fees related to prior periods, derivatives licenses and our data packages. I would highlight that these sales tend to be somewhat lumpy by nature, and we would expect nonrecurring sales in Q4 to be lower. Across client segments, we saw a strong organic growth with sales from both established and newer client segments as well as resilient or improved retention rates. Asset managers and asset owners, which now together comprise nearly $1 billion of our subscription run rate, collectively grew approximately 11% organically. And looking forward, our sales pipeline across products and regions and intensity of client engagement continue to be quite healthy. From a firm-wide perspective, the 12% organic subscription run rate growth benefited from strength across segments. Index subscription run rate growth was more than 11% year-over-year, our 31st consecutive quarter of achieving double-digit growth. This continued momentum is fueled by outsized growth in our investment thesis index modules, particularly in areas like ESG and climate, which witnessed 44% year-over-year run rate growth; as well as within higher-growth client segments like wealth management and hedge funds, which experienced index subscription run rate growth of 17% and 28%, respectively.
Analytics recorded more than 6% revenue growth and approximately 5% run rate growth, with particular strength in equity portfolio management tools and fixed income portfolio management tools. It's also important to underscore that our analytics capabilities are helping to fuel growth in key areas across the company, such as our factor indexes and many of our climate risk and reporting offerings. The ESG and climate segment had another tremendous quarter, growing 53% in revenue and 46% in run rate as we continue to see enormous demand across solutions, across asset classes and across client segments. Within all other Private Assets we're particularly excited about the larger opportunities in front of us with the addition of RCA, which added $74 million in run rate. Given these opportunities, we expect to be making investments in the near term to integrate the business. When combined with the existing Real Estate business, these investments, together with some employee retention expenses that are not excluded from adjusted EBITDA, as well as the reallocation of certain internal costs of this segment, will result in annualized adjusted EBITDA margin for the All Other segment likely closer to the mid-teens next year. Within asset-based fees, we continue to see healthy cash inflows into equity ETFs linked to MSCI indexes, which offset lower market levels over the quarter. We saw particularly strong flows into ETFs linked to our U.S. and developed markets ex U.S. indexes. And from a product standpoint, ETFs linked to MSCI ESG and climate equity indexes drew cash inflows of nearly $18 billion during the quarter, continuing to capture the majority of market share in global ESG and climate equity ETF flows. The period-end basis points were 2.57 basis points as we saw support from these strong flows into higher-fee products based on our investment thesis indexes. Solid operating performance and notably strong revenue growth drove nearly all of the adjusted EPS growth in the quarter. This top line growth was offset by a higher tax rate this quarter versus last year's third quarter as well as higher interest expense year-over-year.
Turning to our balance sheet. We ended the quarter with a cash balance of approximately $1.3 billion after funding the RCA acquisition, executing a $700 million notes offering and redeeming $500 million in higher coupon notes. With this strong capital position, we remain focused on reinvesting in our business as a first priority. This will continue to be an area, as you have been hearing about from Henry and Baer, including custom, ESG and climate and other investment thesis indexes in Private Assets. It will also be in data and technology infrastructure that underpins our ability to meet clients' evolving needs as well as in the coverage organization that allows us to continue tapping into newer client segments and geographies, in addition to better serving our existing clients. We will also continue to selectively pursue opportunistic MP&A and share repurchases with an eye towards maximizing returns to shareholders. We have been actively pursuing both partnerships and potential acquisitions in key strategic growth areas at a faster pace than in the recent past. In addition to acquiring RCA, we recently partnered in the Burgiss acquisition of Caissa, which is strategic both for Burgiss and MSCI, and we have made and may continue to make very small bolt-on acquisitions and investments. Additionally, I would note that cash currently available for repurchases is about half the total cash balance given both global minimum operating cash balances and the timing and cost of accessing excess overseas cash balances. Turning now to our updated guidance, which we published earlier this morning. Our increased adjusted EBITDA expense guidance range primarily reflects an estimated $19 million of incremental expenses associated with RCA for full year 2021, which includes $3.6 million incurred in Q3. This also includes a few million dollars of transaction-related expenses that we will not exclude from adjusted EBITDA expenses.
The increased guidance for operating expenses includes the $19 million of incremental adjusted EBITDA expenses associated with RCA in addition to an estimated $7 million of transaction-related expenses and nearly $10 million of intangible amortization, both excluded from our adjusted metrics. Our narrowed tax rate range takes into account our latest view on a number of discrete items and the fact that we are currently expecting a higher effective tax rate in the fourth quarter than in the prior two quarters. Our lower free cash flow range is nearly all attributable to approximately $110 million in cash tax payments incremental to what we previously expected to make, the majority of which will occur in the fourth quarter. We currently expect these accelerated tax payments to reduce future tax payments. Importantly, our collections remain quite strong, as does the underlying performance of the business. In summary, as both Henry and Baer have noted, we are seeing very strong levels of demand for our offerings across the company. We have a great operating environment to finish 2021 and are excited for the tremendous opportunities we see ahead of us in 2022 and beyond. Before we open it up for questions, I wanted to thank Salli for her enormous contribution to MSCI. This will be her last earnings call as part of MSCI, and her final day will be November 19. After which, Jisoo Suh will be our point person for any investor-related inquiries and questions. We will miss Salli greatly as she's been a key leader for us on so many initiatives over the last few years. We're very sad to see her leave, but I look forward to watching her many successes in the future.
And with that, operator, please open the line for questions.